By Max Dorfman, Research Writer, Triple-I
Louisiana lawmakers passed several bills to bolster the state’s weakened property insurance market in the recently concluded 2023 legislative session. These included one that would have required parties to a lawsuit to disclose third-party litigation funding agreements within 60 days of a filing. But that legislation was vetoed by Gov. John Bel Edwards, and lawmakers don̵7;t plan to override it.
Also included was a broad prohibition on assignment of benefits (AOB), the practice by which policyholders sign over to a third party — a contractor, attorney or public adjuster — their right to bill an insurance company directly for repairs or other services. While this is a common practice across the country, in some states—particularly Florida and Louisiana—it has been a source of widespread claims fraud.
Louisiana’s property insurance market has weakened significantly since the state experienced record hurricane activity in the 2020/2021 seasons. In fact, 11 insurance companies that write homeowners coverage in Louisiana were declared insolvent between July 2021 and February 2023. In addition, 12 insurers pulled out of the state and 50 companies stopped writing new business in hurricane-prone parishes, creating a capacity crunch.
A persistent problem
Abuse of the justice system has been a persistent problem in Louisiana for some time. The state’s “onerous bad faith laws contribute significantly to inflated claims payments and awards,” according to a joint article published by the American Property Casualty Insurance Association (APCIA), the Reinsurance Association of America (RAA) and the Association of Bermuda Insurers and Reinsurers (ABIR).
These problems were highlighted in February 2023, when Insurance Commissioner Jim Donelon issued a cease and desist order against a Houston-based law firm, accusing it of fraud involving potentially hundreds of hurricane-related claims in his state. According to Donelon, the company filed more than 1,500 Hurricane Laura claims in Louisiana over three months in 2022, ahead of the deadline to file lawsuits over the major Category 4 hurricane that hit the state in 2020.
“The size and scope of the McClenny, Moseley & Associates (MM&A) illegal insurance scheme is like nothing I’ve seen before,” Donelon said in a press release. “It is rare for the department to issue regulatory actions against entities that we do not regulate, but in this case the order is necessary to protect policyholders from the company’s fraudulent insurance practices.”
According to reporting from Times Picayune/New Orleans Advocate, an investigation by the Louisiana Department of Insurance found that the Houston-based law firm engaged in insurance fraud and unfair trade practices through Alabama-based Apex Roofing and Restoration and has faced charges of criminal conduct and increased penalties. MM&A has since ceased operations in Louisiana.
Litigation reform has been vetoed
Third-party litigation funding occurs when investors fund lawsuits against large companies in exchange for a share of the settlement. The financing of lawsuits by international hedge funds and other financial third parties — with no stake in the outcome other than a portion of the settlement — has become a $17 billion global industry, according to Swiss Re. Law firm Brown Rudnick sees the industry as even bigger, with a $39 billion global industry in 2019, according to Bloomberg.
Some states have considered requiring greater transparency around the practice, and Montana approved legislation in May requiring certain disclosures in litigation funding. Louisiana Senate Bill 196 would have required parties to a lawsuit to disclose such arrangements within 60 days of filing a lawsuit.
Insurers’ incentive contributions increased
The Louisiana Legislature also agreed to allocate an additional $10 million to the previously approved insurer incentive program, bringing to $55 million the amount available to insurers who agree to enter the state’s home insurance market to offer new coverage.
The bills also include $30 million for a long-term grant program to help homeowners fortify their homes against hurricanes — a 50 percent increase over the amount Donelon discussed when planning for the legislative session.